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Title 26 — Internal Revenue CodeRelease 119-73

§45P Employer wage credit for employees who are active duty members of the uniformed services

Title 26 › Subtitle Subtitle A— - Income Taxes › Chapter CHAPTER 1— - NORMAL TAXES AND SURTAXES › Subchapter Subchapter A— - Determination of Tax Liability › Part PART IV— - CREDITS AGAINST TAX › Subpart Subpart D— - Business Related Credits › § 45P

Last updated Apr 6, 2026|Official source

Summary

Employers can get a tax credit equal to 20 percent of the differential wage payments they pay to certain employees. Only the part of those payments that is $20,000 or less for each employee counts. A “qualified employee” is someone who worked for the employer for the 91 days right before the period the differential pay covers. Companies treated as one employer under tax rules are counted together. The credit lowers any other compensation-related credits for the same employee. No credit is allowed for any year in which the employer is under a final U.S. district court order for violating chapter 43 of Title 38, and for the two tax years after that. Other technical rules like those for a similar employer credit also apply.

Full Legal Text

Title 26, §45P

Internal Revenue Code — Source: USLM XML via OLRC

(a)For purposes of section 38, the differential wage payment credit for any taxable year is an amount equal to 20 percent of the sum of the eligible differential wage payments for each of the qualified employees of the taxpayer during such taxable year.
(b)For purposes of this section—
(1)The term “eligible differential wage payments” means, with respect to each qualified employee, so much of the differential wage payments (as defined in section 3401(h)(2)) paid to such employee for the taxable year as does not exceed $20,000.
(2)The term “qualified employee” means a person who has been an employee of the taxpayer for the 91-day period immediately preceding the period for which any differential wage payment is made.
(3)All persons treated as a single employer under subsection (b), (c), (m), or (o) of section 414 shall be treated as a single employer.
(c)The amount of credit otherwise allowable under this chapter with respect to compensation paid to any employee shall be reduced by the credit determined under this section with respect to such employee.
(d)No credit shall be allowed under subsection (a) to a taxpayer for—
(1)any taxable year, beginning after the date of the enactment of this section, in which the taxpayer is under a final order, judgment, or other process issued or required by a district court of the United States under section 4323 of title 38 of the United States Code with respect to a violation of chapter 43 of such title, and
(2)the 2 succeeding taxable years.
(e)For purposes of this section, rules similar to the rules of subsections (c), (d), and (e) of section 52 shall apply.

Legislative History

Notes & Related Subsidiaries

Editorial Notes

References in Text

The date of the enactment of this section, referred to in subsec. (d)(1), is the date of the enactment of Pub. L. 110–245, which was approved June 17, 2008.

Amendments

2015—Subsec. (a). Pub. L. 114–113, § 122(b)(1), struck out “, in the case of an eligible small business employer” after “section 38”. Subsec. (b)(3). Pub. L. 114–113, § 122(b)(2), amended par. (3) generally. Prior to amendment, par. (3) defined “eligible small business employer”. Subsec. (f). Pub. L. 114–113, § 122(a), struck out subsec. (f). Text read as follows: “This section shall not apply to any payments made after
December 31, 2014.” 2014—Subsec. (f). Pub. L. 113–295 substituted “
December 31, 2014” for “
December 31, 2013”. 2013—Subsec. (f). Pub. L. 112–240 substituted “
December 31, 2013” for “
December 31, 2011”. 2010—Subsec. (f). Pub. L. 111–312 substituted “
December 31, 2011” for “
December 31, 2009”.

Statutory Notes and Related Subsidiaries

Effective Date

of 2015 Amendment Pub. L. 114–113, div. Q, title I, § 122(c), Dec. 18, 2015, 129 Stat. 3052, provided that: “(1) Extension.—The amendment made by subsection (a) [amending this section] shall apply to payments made after December 31, 2014. “(2) Modification.—The

Amendments

made by subsection (b) [amending this section] shall apply to taxable years beginning after December 31, 2015.”

Effective Date

of 2014 Amendment Pub. L. 113–295, div. A, title I, § 118(b), Dec. 19, 2014, 128 Stat. 4015, provided that: “The amendment made by this section [amending this section] shall apply to payments made after December 31, 2013.”

Effective Date

of 2013 Amendment Pub. L. 112–240, title III, § 308(b), Jan. 2, 2013, 126 Stat. 2329, provided that: “The amendment made by this section [amending this section] shall apply to payments made after December 31, 2011.”

Effective Date

of 2010 Amendment Pub. L. 111–312, title VII, § 736(b), Dec. 17, 2010, 124 Stat. 3318, provided that: “The amendment made by this section [amending this section] shall apply to payments made after December 31, 2009.”

Effective Date

Section applicable to amounts paid after June 17, 2008, see section 111(e) of Pub. L. 110–245, set out as an

Effective Date

of 2008 Amendment note under section 38 of this title.

Reference

Citations & Metadata

Citation

26 U.S.C. § 45P

Title 26 — Internal Revenue Code

Last Updated

Apr 6, 2026

Release point: 119-73